Malaysia’s data centre boom looks poised to continue despite power, labour concerns

[SINGAPORE] Data centre operators in Malaysia are brushing aside concerns over power and labour constraints, remaining confident that the sector will continue to boom.

“The demand for sustainable digital infrastructure has actually never been higher,” Jeremy Deutsch, Asia-Pacific president for Vantage Data Centers, told The Business Times.

Vantage is a leading global provider of hyperscale data centre campuses, and counts Singapore sovereign wealth fund GIC among its investors.

The group in September secured a US$1.6 billion investment – led by GIC and the Abu Dhabi Investment Authority – to scale its Asia-Pacific platform. This included the acquisition of a 300-megawatt (MW) hyperscale data centre campus in Johor.

Market watchers say this investment is part of a wider trend observed in Peninsular Malaysia.

A recent Asia-Pacific Data Centre Association (APDCA) report indicated that the country’s data centre capacity is expected to expand seven times, from 505 MW in 2024 to 3.6 gigawatts (GW) by 2030.

The main driver of this boom? A spillover from Singapore.

In a September report, Knight Frank noted that global technology companies and data centre operators feel compelled to look outside Singapore, where they face challenges due to strict planning controls.

Across the Causeway, Johor emerged as the “top alternative” due to its proximity and strong connectivity. But while the initial development was about absorbing spillover demand from Singapore, it has gained a life of its own.

A Cushman & Wakefield report noted that the Malaysian state has rapidly matured into a regional hub for cloud and artificial intelligence (AI) deployments to serve customers across South-east Asia.

Already, Johor has become the region’s fastest-growing data centre hub. One of the reasons for this is strong backing from the Malaysian government.

“Malaysia has been quite forward-leaning into digital infrastructure for a long time,” Deutsch said. He added that the Asia-Pacific’s high population density and strong customer demand make the region particularly attractive for data centres to operate in.

Prior to acquiring the data centre in Johor, Vantage had already opened two such facilities with a total capacity of 467 MW in Kuala Lumpur.

Concerns over data centre expansion

But Johor’s data centre boom is running into significant headwinds – including rising power tariffs and a shortage of skilled labour – which are casting doubts on the sector’s ability to sustain growth.

“The (Johor) market is highly constrained, with a vacancy rate of just 1.1 per cent, as planning becomes more challenging and power shortages come through,” Knight Frank noted in its report.

Malaysia also introduced new power tariffs in July. Some analysts predict that this could lead to a 10 to 14 per cent increase in power costs for data centre operators, said Cushman & Wakefield.

While this could weaken Malaysia’s competitiveness as a regional AI data centre hub, it noted that the market’s power tariffs are among the three lowest in the Asia-Pacific.

“We do not expect any significant changes or disruptions to Johor’s position as a leading cloud and AI hub,” the commercial real estate services firm added.

Meanwhile, APDCA said that recruiting talent for data centres has been somewhat challenging, as the skill set required is currently lacking in Malaysia. It noted: “The availability of skilled data centre professionals per capita remains lower than in more established markets such as Singapore, Hong Kong, South Korea and Japan.”

Additionally, regional peers such as Thailand and Vietnam report lower attrition rates than Malaysia.

To further support Malaysia’s competitiveness in this sector, APDCA suggested enhanced talent retention strategies as well as greater collaboration between government and industry.

For example, data centres can play a role in addressing the growing demand for skilled workers in the information and communications technology sector, the association said.

“By investing in local talent development, through partnerships with educational institutions, apprenticeships, and support for Stem (science, technology, engineering and mathematics) programmes, data centre providers help bridge this skills gap.”

Operators such as Vantage agree. “It’s incumbent upon the data centre industry (to do this) as we enter new markets to upskill and train and educate the local teams that are available to us,” Deutsch said.

Despite the hurdles, he remains optimistic about the growth of the data centre sector in Malaysia – on the back of “new and innovative services that are coming very quickly to the Asia-Pacific”.

Economic payoff too big to ignore

With more data centres being constructed in the nation, Malaysia is poised to reap the economic benefits.

These facilities are expected to bring in US$10.2 billion in output and US$4.2 billion in gross value added to the Malaysian economy annually, APDCA noted in its report.

In addition, the sector is projected to support about 30,900 jobs annually through ongoing operations of data centres, of which 4,300 are considered knowledge jobs. This will contribute US$1.3 billion in total annual wages to the economy.

A knowledge worker is defined as a qualified person who holds a degree and has at least 10 years’ experience working in any of the qualified activities.

Beyond Malaysia, Deutsch said that Vantage is considering different places within the Asia-Pacific for expansion. The countries on the radar include Indonesia, Thailand and the Philippines.

The company’s expansion strategy is driven by customer interest and demand in these markets.

“There is a huge opportunity across the Asia-Pacific region for cloud and AI data centres, and really scaling digital infrastructure to enable that capability for the entire region,” he said.